Learning To Look Gift Horses In Mouth

By ROBIN POGREBIN and CAROL VOGEL

Published: June 6, 2005

CORRECTION APPENDED

The travails of Alberto W. Vilar, the arts benefactor arrested on May 26 on fraud charges, would seem a cautionary tale for arts institutions all over the country. Even before he was accused of stealing from a client to cover expenses and make good on charitable donations, Mr. Vilar had left several opera and concert halls hanging, and in the case of the Metropolitan Opera, embarrassed by having named its grand tier after him.

Cultural officials interviewed over the course of last week said that in an era when megamillionaires are made faster than ever, fund-raising experts have grown more cautious about whom they anoint as board members and about ensuring that pledges are in hand before money is spent.

Yet at the same time, arts groups say, there is no sure-fire way to predict or guard against a reversal of fortune. And as corporate and government aid declines, cultural institutions need to take what they can get.

''Unless something really bad turned up, we would take the money and run,'' said Samuel C. Butler, chairman of the New York Public Library.

''The bad news is the library hasn't had that problem,'' he added jokingly, referring to dealing with a major donor's default. ''And the good news is the library hasn't had that problem.''

Indeed, given how fervently arts institutions compete to court big givers, donors like Mr. Vilar are very much in demand. ''There's a foot race to get certain people,'' said one prominent fund-raiser who insisted on anonymity. ''There's a lot of young hot money, and everyone's after it.''Kenneth T. Jackson, a professor of history at Columbia University and a scholar of New York history, said Mr. Vilar's impact, however short-lived, was a positive sign of meritocracy. ''There are cities where the old money does have a kind of lock on who's accepted socially and who's on the board of leading institutions,'' he said. ''In New York City, it's all about money. And that's awful in some ways, but it's also liberating.''

''It's less about who your grandparents were and more about who you are and what you do,'' he added.

Still, as corporations come under greater scrutiny as a result of problematic accounting incidents, cultural groups say they have grown more conscious of whose money they are taking and the importance of board oversight.

After two trustees of the Whitney Museum of American Art fell from grace -- Jean-Marie Messier was ousted as chairman of Vivendi Universal, and L. Dennis Kozlowski, the former chairman and chief executive of Tyco International, has been indicted -- the museum started a legal and ethics committee to screen potential board members.

''We don't have the F.B.I. do an investigation,'' Arthur Fleischer Jr., the chairman of the committee, said dryly. ''Most new trustees are known to at least one member of the board.''

Herbert R. Axelrod, a New Jersey philanthropist whose gift of rare string instruments to the New Jersey Symphony Orchestra raised suspicions of a tax dodge, is serving a prison sentence for unrelated tax fraud. The instruments' value is still being resolved.

Bruce Crawford, the chairman of Lincoln Center, said: ''Governance in nonprofit cultural institutions has improved a lot in the last two to three years. When you make a pledge over five years and you aren't paying, you can't hide this stuff anymore.''

At the Boston Symphony Orchestra -- which Mr. Vilar regularly attended but did not support -- Mark Volpe, the managing director, said he reviewed pledges regularly with his chief operating officer. ''There is more and more scrutiny,'' he said, ''not just in reviewing donor rosters but in testing the collectibility.''

Michael Margitich, the Museum of Modern Art's senior deputy director for external affairs, said: ''Everyone's being much tougher these days. In general institutions are working more carefully, reviewing legal documents and dotting every 'i.'''

Mr. Margitich said the Modern's board ''likes people to go through a long courtship'' before enlisting trustees. First, donors tend to join a committee -- say, a curatorial or education panel -- and then they gradually become involved with the institution before being asked to join the board. This process can take anywhere from two to five years. ''It's a getting-to-know-you process,'' he said.

These relationships serve as a kind of insurance for the gifts, arts executives say; the longer you know prospective donors, the more you can rely on their pledges. ''Most of the operating and capital gifts are from people we know pretty well,'' Mr. Volpe said.

Similarly, the more extensive the history, the more forgiving institutions can be if donors' fortunes take a turn for the worst. ''If the I.R.S. can work out with citizens a payment plan or time to make good on their legal obligations to the government, then surely a nonprofit institution can be at least as patient and understanding when a philanthropist gets into trouble,'' said Reynold Levy, president of Lincoln Center.

Still, institutions say they are not shy about nudging contributors when necessary. Conrad M. Black, the embattled former chief executive of Hollinger International, took months to pay a $100,000 pledge he made as a chairman of the New York Public Library's fund-raiser, the Literary Lions dinner, in November 2003.

''We remind them of their schedules,'' said Gail Scovell, general counsel at the Solomon R. Guggenheim Museum in New York. ''It's much higher on our list than it is on theirs.''

Cultural groups say legal action is a last resort. ''Suing donors is not something we would ever do lightly,'' said Mr. Volpe, of the Boston Symphony. ''We've never initiated an action against a donor.''

Legal recourse is also of limited value. ''A gift is not an enforceable thing,'' Ms. Scovell said. ''What you need to show is you relied on it.''

The Metropolitan Opera relied on a $4 million pledge from Mr. Vilar to underwrite two of its most extravagant productions, Prokofiev's ''War and Peace'' and Beethoven's ''Fidelio.'' When Mr. Vilar's money failed to come through, the Met created, in September 2002, a bad debt reserve to cover it.

Mr. Vilar's experience with the Met offers an important lesson for institutions everywhere, arts executives say: Wait until you have the cash before you spend it. Under 1995 accounting rules, Ms. Scovell said, pledges have been counted as income, so institutions must be careful not to spend ahead of cash flow.

Michael M. Kaiser, president of the Kennedy Center, to which Mr. Vilar pledged $50 million, declined to discuss the specifics of Mr. Vilar's gift. But he said the Kennedy Center creates an account each year containing a ''percentage of contributions that we expect not to receive.'' Given the center's large donor pool of 30,000, he added, there are always going to be defaults. ''We overraise,'' he said, ''because we know a certain proportion of our donors won't come through.''

But donors generally do come through, arts executives say, and defaults are rare. If the defaults have been getting more attention, they say, it is because the money is bigger and more quickly acquired than it was in the past. ''You've got a generation of people who made money real, real fast,'' Mr. Volpe said, adding that this has led to a kind of ''venture philanthropy.''

Dorothy Cullman, a longtime arts patron, says the old guard, to the extent that one still exists, does not resent the new donors, but the rush to sign up new rich givers is perhaps precipitous. ''I think boards are too quick to get people who they think have money,'' she said.

On the other hand, she reflected, ''It's awfully hard to say, 'I won't take their money.'''

Photos: Alberto W. Vilar defaulted on gifts to the Metropolitan Opera. (Photo by James Estrin/The New York Times)(pg. E1); L. Dennis Kozlowski, a former Whitney trustee, was indicted. (Photo by Chip East/Reuters)(pg. E4)

Correction: June 7, 2005, Tuesday
An article in The Arts yesterday about some of the risks faced by cultural institutions in courting donors and counting on pledged donations misidentified the position held by Samuel C. Butler at the New York Public Library. He remains on its board but is no longer chairman; Catherine C. Marron succeeded him in November.